On Jul 2, we issued an updated research report on Astec Industries, Inc.ASTE . The company is poised to gain from strong backlog, improvement in product sales activity and developing Energy group. However, strong U.S. dollar and tariff on the imports of steel might thwart the company's growth in the near future.
Let's illustrate the factors in detail.
Astec to Grow on Backlog Strength
Astec's total backlog improved around 18% year over year in first-quarter 2018. The Infrastructure group had a relatively good order intake during the quarter. Aggregate and Mining Group backlog also improved. Further, the Energy Group's backlog was supported by rising order inflow for product serving customers and construction, industrial, oil and gas. The company also experienced increased coding activity in the oil and gas drilling products. Thus, Astec expects its revenues to be up on strong backlog in 2018.
Product Sales Activity to Impel Results
Astec is poised to gain from focus on producing higher quality products and operational excellence internally. The company expects all segments to record improved sales and net income in 2018. Thus, Astec believes its second-quarter 2018 revenues will be modestly higher than the first quarter. For 2018, the company guided its core revenues to be up 7-12% versus last year.
Energy Group to Drive Growth
Astec's Energy group witnessed stellar sales activity during the first quarter for products targeted at infrastructure, oil, chemical and food industries, which contributed to the 35.8% increase in backlog in the group. The company has built concrete plants in the Energy group and quoting activity remains promising for these plants.
Strong U.S. Dollar a Threat
From mid-2012 through 2017, a strong U.S. dollar has dampened pricing in certain foreign markets Astec serves. The company expects the U.S. dollar to remain strong as compared to historical rates, in the near term, relative to most foreign currencies. Escalating domestic interest rates or weakening economic conditions abroad might cause the U.S. dollar to strengthen further, which will impact Astec's international sales.
Steel Tariff to Impede Astec's Margins
Astec uses steel as a major raw material to manufacture products. Therefore, steel surcharges remain a risk. As a result, the imposition of a 25% tariff on the imports of steel will dent its margin performance.
Share Price Performance
Astec has underperformed its industry with respect to price performance over the past year. The stock has gained 7%, while the industry has recorded growth of around 28% during the same time frame.
Zacks Rank & Stocks to Consider
Astec currently carries a Zacks Rank #3 (Hold).
Better-ranked stocks in the same sector include Actuant Corporation ATU , Chart Industries, Inc. GTLS and Zebra Technologies Corporation ZBRA . All three stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here .
Actuant has a long-term earnings growth rate of 15.6%. Its shares have been up 17%, over the past year.
Chart Industries has a long-term earnings growth rate of 26.9%. The company's shares have appreciated 67% in the past year.
Zebra Technologies has a long-term earnings growth rate of 5%. The stock has gained 49% in a year's time.
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